Fearful Stocks for Greedy Investors

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
-- Warren Buffett

Of all of the Oracle of Omaha's orations, this one holds a special place in Foolish investors' hearts. When you're looking to bag a bargain, a panicked sell-off by jittery investors offers you a great chance to snatch some stocks on the cheap.

In the short term, professional traders' pessimism can become a self-fulfilling prophecy. When desperate institutions lower their asking prices to get rid of a stock, buyers' bid prices fall in tandem and create the very price decline that both sides feared in the first place -- until the selling stops.

Until it does, savvy investors can "get greedy" and snap up bargains -- assuming they really are bargains -- from these fearful sellers. In today's column, we'll see which stocks Wall Street's motivated sellers are most frantic to unload. Once we've compiled this shopping list of potential picks, we'll check them against the collective intelligence of Motley Fool CAPS.

Today's contenders include:

Companies are selected from the "Institutional Ownership Down Last Month" list published on MSN Money on the Saturday following close of trading last week. Recent price provided by Yahoo! Finance. CAPS ratings from Motley Fool CAPS.

Professional investors are selling these stocks hand over fist, yet the opinions on CAPS are much more mixed. Sure, everyone seems to agree that Live Nation belongs to the genus canis, and that Developers Diversified is an honest-to-goodness dog with fleas -- but individual investors suspect that Wall Street is overreacting in dumping the oil industry as it has.

As you can see, both of the two above-average-rated stocks on today's list operate in the oil patch. ION gets top marks, though, and so that's the one we'll home in on today, as we examine ...

The bull case for ION Geophysical
We begin with a note from UncommonSense:

[ION Geophysical] has developed the technology to transform the land drilling industry. Cableless seismic technology (Firefly) is the future of the industry and Input/Output is leading the way. BP (NYSE:BP) basically said they loved the technology and may re-map whole projects with the new cableless system because of its high data quality. ... [ION] is also diversified [and] ... involved with offshore seismic data gathering as well, which is a great industry to be in because demand shouldn't start to wane for several years.

UncommonSense was writing last year, and the price per barrel has since fallen down a deep, dark well. For a more recent view of the company, we turn to samhanlj, who in July highlighted ION's "[strong] ROIC, positive EPS, [and] steadily growing net income," not to mention "[plenty] of cash flow." Our CAPS member also says that its "performance compares favorably to its [closest] competitors" but that ION is "more reasonably priced."

One of the great things about CAPS is that with 120,000 investors and counting, we're bound to have a few contributors who can offer firsthand experience with the companies they recommend. So let's end with a few words from ZeroPhaseWavelet, who last year told us: "As a geophysicist in the industry, I can say with confidence that [ION] is the leader in two areas: seismic acquisition components and advanced 3D depth processing."

With a stable of customers that ranges from Apache (NYSE:APA) to Total (NYSE:TOT) and all the way up to ExxonMobil (NYSE:XOM), ION seems to be just as popular as our CAPS pitchers say it is. Meanwhile, the stock itself looks crazy cheap, with a price-to-earnings ratio of 4 and a trailing price-to-free cash flow ratio not much higher.

And while I wouldn't go quite so far as samhanlj and call ION's return on invested capital of 7.5% "strong," the growth story certainly appears to be in place here. ROIC has been generally rising in recent years, and if ION can maintain the 60% compound earnings growth it's managed over nearly the past three years, the stock's a no-brainer, plain and simple.

Time to chime in
Of course, we all know that it cannot. Nobody grows that quickly forever. Not eBay. Not Google. And in fact, the analysts who track ION do expect growth to decelerate next year and slow all the way down to ... 26%.

To me, that's plenty fast to make ION a "buy" candidate. But perhaps you disagree? If so, then now's your chance to tell us why. Click on over to CAPS, and toss your two cents into the pot.